Slug & Lettuce owner Stonegate races to plug £2bn debt black hole
THE owner of Slug & Lettuce has raised concerns over its future as it races to refinance more than £2bn in debts.
Stonegate, which is the UK’S biggest pub operator with more than 4,000 sites, warned in newly filed accounts that there was a “material uncertainty” around its ability to continue as a going concern.
This stems from challenges being able to refinance £2.2bn debts before 2025.
In its latest annual report, bosses said: “Whilst there is a plan in place for refinancing this debt, as at the date of signing the financial statements there is a risk that it exists over the completion of this exercise.”
If the company is unable to do this, it said it “may be unable to realise its assets and discharge its liabilities in the normal course of business”.
Stonegate is domiciled in the Cayman Islands and owned by the private equity firm TDR Capital, which also jointly owns Asda.
As well as Slug & Lettuce, Stonegate runs the Be At One and Yates bar chains and the Craft Union pub brand. Stonegate’s total debts were north of £3bn at the end of its financial year, some of which is linked to its buyout of rival pub chain Ei Group in 2019. The deal, which turned Stonegate into Britain’s largest pub operator, valued Ei at £3bn, of which £1.7bn was debt.
Soaring interest rates in the wake of the pandemic have heaped pressure on businesses with large amounts of borrowings as the cost of financing debts jumped. In January, ratings agency Fitch warned it may have to downgrade Stonegate’s outlook if it cannot refinance its £2.2bn debt pile.
It emerged in February that Stonegate had drafted in advisers at Evercore and Kirkland & Ellis to help assess its options. The warning over Stonegate’s debts comes after the company signed a deal in December to refinance a portfolio of around 1,000 pubs for £638m. David Mcdowall, the chief executive at Stonegate, said: “We have been very clear that we continue to work towards achieving our long-term balance sheet goals, with the successful refinancing of a portion of our estate in December marking a significant strategic step towards this.”
Stonegate’s debt issues come after the pub company was criticised for introducing so-called “surge pricing” in 800 of its pubs last year, charging customers as much as 20p more per pint when football matches and other events are on.
Stonegate said at the time this would cover the increased costs associated with big events such as extra staff and increased security.
Stonegate is not the only big pub company to use surge pricing. Phil Urban, the chief executive of Mitchells & Butlers – which owns the All Bar One and Nicholson’s pub chains – admitted doing the same and said the practice had been around “forever and a day”.
He said: “In our case, yes, we do it. It’s always been around in the industry, when the costs of operation for particular events are high, then sometimes people price accordingly.”
Gary Lindsay, managing partner at TDR Capital, told the business and trade select committee in January that he was “confident” Stonegate would be able to refinance its debts.
Revenues at Stonegate rose by just over £100m to £1.7bn in the year to September 2023, with the company recording a pre-tax loss of £257m.
Stonegate said: “While the macroeconomic environment continues to have an impact and the cost of living crisis has led to lower profit and operating cash flows, overall the group has delivered a highly respectable performance.”